Rental guarantor

RHemmings

Grumpy_chap said:

RHemmings said:

BTW: I never suggested that the guarantors should be able to drop out before the landlord can get the tenants out. At least, not unless the landlord takes an unreasonable amount of time to get the tenants out. 

That would be the effect of the Guarantor have a time limitation.

Perhaps, the solution would be that either the LL or the Guarantor could commence eviction proceedings.  That still has problems, as it creates the position where the Guarantor would result in loss of income to the LL.

As in my post, the landlord would have a reasonable length of time to react and for eviction processes (if needed) after the guarantor serves notice. So, I don't think that is the effect of what I am suggesting. Unless the landlord drags their feet - in which case it's their own fault. 

DullGreyGuy

The agreement isn't "if the tenants default I will kick them out and you cover the rent in the interim", it's simply "if they dont pay you will".  Again the drafting could be changed but people dont. 

Guarantor loans are just the same... you dont agree to pay just a couple of payments in the other persons failure but to pay off the full loan. 

Is it ignorance? If it is is it ignorance to what they are signing up to or ignorance to the fact the person they are guaranteeing may default? Is it laziness not to read what you're signing or ask questions? Dont think it's beneficial to speculate. 

Grumpy_chap

martindow said:

Assuming the agreement is watertight, shouldn't the LL be expected to minimise their losses?  Could the guarantor not challenge being over-charged, for instance when a LL doesn't take action to evict the tenant as soon as arrears occur rather than letting it drift and relying on the guarantor. 

What losses is the LL suffering?

The LL has agreed to let the property to a Tenant who does not meet the required financial security, solely on the basis that the Guarantor will pay if the Tenant does not pay.
It cannot be assumed that every time the Guarantor is called upon to meet the payments that the Guarantor wishes the Tenant to be evicted.  Consider parents helping child to establish their place.

The LL suffers a loss if the Tenant does not pay and the Guarantor does not pay.  That would give the LL a motive to bring matters to a conclusion (evict the Tenant).  The LL would still be able to pursue the Tenant and the Guarantor for the monies owed.  The T and the G both get trashed credit histories.

This thread seems to be looking to just let Guarantors off the hook despite the fact they have signed up to a complex financial agreement.

doodling

Hi,

Grumpy_chap said:

martindow said:

Assuming the agreement is watertight, shouldn't the LL be expected to minimise their losses?  Could the guarantor not challenge being over-charged, for instance when a LL doesn't take action to evict the tenant as soon as arrears occur rather than letting it drift and relying on the guarantor. 

What losses is the LL suffering?

The LL has agreed to let the property to a Tenant who does not meet the required financial security, solely on the basis that the Guarantor will pay if the Tenant does not pay.
It cannot be assumed that every time the Guarantor is called upon to meet the payments that the Guarantor wishes the Tenant to be evicted.  Consider parents helping child to establish their place.

The LL suffers a loss if the Tenant does not pay and the Guarantor does not pay.  That would give the LL a motive to bring matters to a conclusion (evict the Tenant).  The LL would still be able to pursue the Tenant and the Guarantor for the monies owed.  The T and the G both get trashed credit histories.

This thread seems to be looking to just let Guarantors off the hook despite the fact they have signed up to a complex financial agreement.

It is unclear how the T or G would get a trashed credit history if they pay up within the month permitted following a county court judgement.

I don't think anyone is suggesting that guarantors should be "let off the hook" but are simply observing that guarantees are unusual in resulting in potentially perpetual unlimited financial liability and it may be appropriate for there to be a way to bring that commitment to a close, without unduly disadvantaging the landlord.

With the increase in the use of guarantees, I suspect that this is an area in which there will be increasing pressure for regulation so it might be advantageous to landlords as a whole in the longer term for them to ensure that they have sensible guarantee agreements which do not lead to outcomes which might be considerd to be unreasonable.  The won't happen of course so regulation is probably inevitable.

Grumpy_chap

doodling said:

Hi,
It is unclear how the T or G would get a trashed credit history if they pay up within the month permitted following a county court judgement.

I don't think anyone is suggesting that guarantors should be "let off the hook" but are simply observing that guarantees are unusual in resulting in potentially perpetual unlimited financial liability and it may be appropriate for there to be a way to bring that commitment to a close, without unduly disadvantaging the landlord.

With the increase in the use of guarantees, I suspect that this is an area in which there will be increasing pressure for regulation so it might be advantageous to landlords as a whole in the longer term for them to ensure that they have sensible guarantee agreements which do not lead to outcomes which might be considerd to be unreasonable.  The won't happen of course so regulation is probably inevitable.

Thanks for the clarification / correcting my lack of completeness with regard to the credit history risk.

The mechanism to bring the Guarantor agreement to a close is for the Tenant to vacate the property.

The regulation of private lettings has been increasing by quite some margin in recent years, in the Tenant's favour.
Proposed end to "no fault" evictions will further tip the balance in favour of Tenants.
That has been coincided with changes to the taxation regime because, as we all know, all(*) LL's are evil and must be punished
The result so far is increased rents and fewer properties.  Threads on that arise from time-to-time.

What outcome would regulation on Guarantors seek to achieve that does not wholly negate the purpose of the Guarantor?
While the current mechanism is not perfect, judging from the threads that appear, those that get tripped up do seem to be those that failed to understand the agreement they were entering, doing a favour for a friend, etc.  
If not a Guarantor system, what would be the alternative for LL's?

• Only rent to those that satisfy the financial vetting criteria?
• Charge higher rent to those with a lower financial rating?

Remember, it is not the LL that specifically sets the financial vetting criteria, but the insurance companies from whom the LL purchases rent protection insurance.

(*) except me

RHemmings

Grumpy_chap said:

doodling said:

Hi,
It is unclear how the T or G would get a trashed credit history if they pay up within the month permitted following a county court judgement.

I don't think anyone is suggesting that guarantors should be "let off the hook" but are simply observing that guarantees are unusual in resulting in potentially perpetual unlimited financial liability and it may be appropriate for there to be a way to bring that commitment to a close, without unduly disadvantaging the landlord.

With the increase in the use of guarantees, I suspect that this is an area in which there will be increasing pressure for regulation so it might be advantageous to landlords as a whole in the longer term for them to ensure that they have sensible guarantee agreements which do not lead to outcomes which might be considerd to be unreasonable.  The won't happen of course so regulation is probably inevitable.

Thanks for the clarification / correcting my lack of completeness with regard to the credit history risk.

The mechanism to bring the Guarantor agreement to a close is for the Tenant to vacate the property.

The regulation of private lettings has been increasing by quite some margin in recent years, in the Tenant's favour.
Proposed end to "no fault" evictions will further tip the balance in favour of Tenants.
That has been coincided with changes to the taxation regime because, as we all know, all(*) LL's are evil and must be punished
The result so far is increased rents and fewer properties.  Threads on that arise from time-to-time.

What outcome would regulation on Guarantors seek to achieve that does not wholly negate the purpose of the Guarantor?
While the current mechanism is not perfect, judging from the threads that appear, those that get tripped up do seem to be those that failed to understand the agreement they were entering, doing a favour for a friend, etc.  
If not a Guarantor system, what would be the alternative for LL's?

• Only rent to those that satisfy the financial vetting criteria?
• Charge higher rent to those with a lower financial rating?

Remember, it is not the LL that specifically sets the financial vetting criteria, but the insurance companies from whom the LL purchases rent protection insurance.

(*) except me

I think you have fallen into the trap of the fallacy of the excluded middle. What others are suggesting is that we need something in-between the current situation and no guarantors at all. My readings of your post is that you are only considering the two extremes. Others (including me) are suggesting the middle but you seem to interpret those suggestions as being the extreme of no guarantors or no effective guarantors. 

Grumpy_chap

RHemmings said:

I think you have fallen into the trap of the fallacy of the excluded middle. What others are suggesting is that we need something in-between the current situation and no guarantors at all. My readings of your post is that you are only considering the two extremes. Others (including me) are suggesting the middle but you seem to interpret those suggestions as being the extreme of no guarantors or no effective guarantors. 

I certainly am not only considering the extremes.
I referenced upthread an alternative:

Grumpy_chap said:

RHemmings said:

BTW: I never suggested that the guarantors should be able to drop out before the landlord can get the tenants out. At least, not unless the landlord takes an unreasonable amount of time to get the tenants out. 

That would be the effect of the Guarantor have a time limitation.

Perhaps, the solution would be that either the LL or the Guarantor could commence eviction proceedings.  That still has problems, as it creates the position where the Guarantor would result in loss of income to the LL.

For other "middle-ground", none of the suggestions seem to be ones that would actually change the current reality.

FWIW, had our BTL for nearly 20 years now and never requested a Guarantor.
Nor have I only rented to the "rich" - we have had Tenants with UC or other means-tested benefits.

Alderbank

martindow said:

I am surprised that the guarantor does not have a degree of protection as they are an individual dealing with a business (the landlord or their agent).  Guarantors, sometimes naively, sign an agreement with terms that that seem to favour the LL.  This is not a B2B transaction.

Assuming the agreement is watertight, shouldn't the LL be expected to minimise their losses?  Could the guarantor not challenge being over-charged, for instance when a LL doesn't take action to evict the tenant as soon as arrears occur rather than letting it drift and relying on the guarantor. 

It's not a B2B transaction but it's not just a simple contract either, it's transacted as a deed.

The guarantee is only about paying the rent, not any other aspects of the tenancy. As long as the tenant wishes to stay in the property and the rent is paid there are no arrears, and the landlord has no grounds for going to court to seek to end the tenancy.

Often, guarantors are the parents of a disabled adult child or other relative who is trying to live independently. The guarantor knows the tenant might sometimes mess up the rent and and they actively do not want the contract to be terminated because of that. That is why they have volunteered to be guarantor - the whole point of having a guarantor is so that the LL doesn't take action.

The guarantor is not a party to the tenancy and has no legal right to put any pressure on either landlord or tenant to terminate it.

As above, if the guarantor wants 'out' his best bet is to challenge the legitimacy of the deed.

RHemmings

Grumpy_chap said:

RHemmings said:

I think you have fallen into the trap of the fallacy of the excluded middle. What others are suggesting is that we need something in-between the current situation and no guarantors at all. My readings of your post is that you are only considering the two extremes. Others (including me) are suggesting the middle but you seem to interpret those suggestions as being the extreme of no guarantors or no effective guarantors. 

I certainly am not only considering the extremes.
I referenced upthread an alternative:

Grumpy_chap said:

RHemmings said:

BTW: I never suggested that the guarantors should be able to drop out before the landlord can get the tenants out. At least, not unless the landlord takes an unreasonable amount of time to get the tenants out. 

That would be the effect of the Guarantor have a time limitation.

Perhaps, the solution would be that either the LL or the Guarantor could commence eviction proceedings.  That still has problems, as it creates the position where the Guarantor would result in loss of income to the LL.

For other "middle-ground", none of the suggestions seem to be ones that would actually change the current reality.

FWIW, had our BTL for nearly 20 years now and never requested a Guarantor.
Nor have I only rented to the "rich" - we have had Tenants with UC or other means-tested benefits.

There were other suggestions above which you seem to have ignored, or seem to assume that they will result in the extreme of the guarantee being worthless. E.g. that a guarantor could have a notice period, and that the landlord has to minimise their losses should (e.g.) they decide to evict the tenant and the tenant not move until the bailiffs are there and leave damage etc.

There are plenty of ways that guarantor agreements can be improved to still give landlords reasonable protection, while not having the current situation of a guarantor being stuck forever with no control over what happens. 

Firstly, guarantee agreements could be effective for a maximum length of five years from the time of signing. So that if a guarantee agreement is to run longer than that, then a new agreement could be signed. E.g. I landlord may decide to negotiate an extension four years six months in to an existing agreement so that if agreement is not reached there is still a reasonable length of time for the landlord to act. That allows for extended periods of protection for the landlord, while not tying the guarantor in forever.  Of course the guarantee would also end if the tenancy ends. 

Secondly there is the problem of the guarantor being tied into rent increases with no direct control over that. It should be possible for a guarantor to challenge a rent increase via tribunal. (I'm assuming this is not possible now). And/or it could be that the guarantor's liability for rent (note: not just the rent itself) could be limited to the original rent + RPI increases. Note: that wouldn't prevent a higher rent being charged. Just that in the case of above RPI increases, the guarantor's liability would no longer cover all of the rent.

Thirdly, it could be made compulsory for a landlord using a guarantor to take out rent guarantee insurance should the guarantor offer to pay for this as part of the guarantee. Like other things in the property market, the insurance cost could be challenged should the amount not be reasonable, e.g. it could be normal that three quotes are provided and agreed. Personally I think making rent guarantee insurance compulsory could lead to some problems if the quotes provided by providers are too high because they consider the tenant too much of a risk. (Which I think plausible in some circumstances where there is a guarantor.) 

Fourthly, there could be a maximum period of time that the landlord could require the guarantor to cover the rent for. E.g. one year. This means that should the landlord not receive rent from the tenant, they have to act to end the tenancy within that time or the guarantor will no longer be liable. I think that one year is a suitable time span for this.

I'm willing to bet that rent guarantee insurance providers won't be stuck into paying out forever should a tenant no longer be able to pay the rent. I bet there are terms and conditions that could inform working out how to limit guarantor liability could work. In all stages of things going wrong. 

Note: I'm not a lawyer nor a lawmaker but just a random person on a forum. I believe that the above is a reasonable first draft towards something workable, and I believe heading in the direction of something better than the current situation. I would hope that real lawyers and lawmakers should be able to come up with something far better. 

Grumpy_chap

RHemmings said:

Firstly, guarantee agreements could be effective for a maximum length of five years from the time of signing. 

That would result in the LL commencing S21 eviction proceedings at 36 months, so that the eviction process is concluded and the T gone before 5 years arrives.

RHemmings said:

Secondly there is the problem of the guarantor being tied into rent increases with no direct control over that. It should be possible for a guarantor to challenge a rent increase via tribunal. 

One assumes the G knows the T.  The T can advise the G if there is a change to the rent and the T has rights to challenge the increase via tribunal.  
Given current contract law, where the G is not a party, any action such as tribunal challenge has to be in the name of T.  This is not unusual - consider car insurance where the insurer does everything but any actual legal case has to be in the name of the insured.  The G is, effectively, the insurer for the T.

RHemmings said:

Thirdly, it could be made compulsory for a landlord using a guarantor to take out rent guarantee insurance 

Rent guarantee insurance won't accept Tenants that require a Guarantor.
I do agree that rent guarantee insurance is a better approach and is the way I cover risk.
Having rent guarantee insurance PLUS a Guarantor would be double cover and giving the LL a double bite at the cherry if things went wrong. 

RHemmings said:

Fourthly, there could be a maximum period of time that the landlord could require the guarantor to cover the rent for. E.g. one year. This means that should the landlord not receive rent from the tenant, they have to act to end the tenancy within that time or the guarantor will no longer be liable. I think that one year is a suitable time span for this.

You might think.
Current eviction process are taking two years to go through the courts - hence, why I said at (1) above that LL would commence eviction at 36 months based upon the five-year timeframe suggested.
The practical outcome of the above would be that Tenants find the security of tenure reduced.  They would start a tenancy and on the second day would be served notice to commence the ball rolling on eviction.  Except S21 cannot be issued within the initial fixed term (usually 1 year) or the first 4 months, so that would all crash into a big mess of conflicting timelines and leave the LL with a long period after the first year when the Guarantor is in place, but the LL has no Guarantorship.  
I think the practical effect of this would be to negate the Guarantor process entirely and LLs would only rent to those that are good credit risks in the first place.  
A sub-prime market of rent at massively inflated prices for the less financially secure would grow.  I don't think that would be a good thing.

RHemmings said:

I'm willing to bet that rent guarantee insurance providers won't be stuck into paying out forever should a tenant no longer be able to pay the rent. 

You are correct.  The insurers are also ruthless at processing evictions.  The terms of the policy usually does not commence payment until valid S21 is served.  The insurers show no grace at all and once that S21 is in, apply every timeline with absolute strictness.